Original title: a company that let "stock god" lose 11 billion dollars! Buffett: this is not the first mistake I made, but it must be the source of a big mistake: the Securities Times Network
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Today's story is about the investment "Waterloo" of Warren Buffett.
In January 2016, Berkshire Hathaway officially acquired precision parts company (Precision Castparts Corp,PCC) for $37.2 billion. In a letter to shareholders that year, Buffett said the perfect integration of precision parts and Berkshire's model would greatly improve the company's standardized earnings per share.
Five years later, Berkshire. Hathaway calculated $11 billion in asset write-downs from investments in precision parts companies. Buffett said buying precision parts wasn't his first mistake, but it was definitely a big one.
Origin:
Precision parts was founded in 1953 by Joseph Buford Cox (Joseph Buford Cox), which initially supplied parts for jet engines and then acquired General Electric Co in 1967 and 1968.And Boeing CoThe contract of the company.
In 1989, precision parts were listed on the New York Stock Exchange under the symbol PCP. In the next 20 years, through continuous mergers and acquisitions, the size of the company gradually expanded. The company's products are mainly used in aerospace, including precision aluminum alloy products, fluid control components, oil and gas pipeline control valves, heavy machinery, aerospace jet engines, aircraft structural control components, landing gear, doors, engine covers, wings, gas turbines, various forgings and precision castings in medical components, etc.
At that time, the main customers of precision parts companies included Boeing Co, Rolls-Royce, General Motors, Airbus, Bombardier, Cessna, Goodrich and Lockheed Martin Corp., Northrop Grumman, Mitsubishi heavy Industries and other mainstream airlines and parts companies in the aviation market.
The company's share price entered the upward channel in 2000. By 2016, when it was acquired, the share price had risen from $3 to $235, up more than 80 times. In 2008, precision parts first entered the Fortune 500, and by 2016, it had ranked 282 in the Fortune 500.
The company's robust performance in terms of size and share price began to attract Berkshire. Hathaway's attention.
Acquisition:
According to reports, Buffett did not decide to buy precision parts from the very beginning. He noticed that the company was all thanks to Todd Combs, its investment manager. In 2012, Combs began working for Berkshire. Hathaway bought shares in precision parts companies.
Buffett said he would not intervene in stocks bought by his investment managers, but would look at their positions once a month. Because usually he is familiar with the stocks that investment managers buy, but he knows nothing about precision machinery.
In July 2015, precision parts company CEO Mark Donigan visited Combs routinely at Berkshire Hathaway's headquarters in Omaha. Buffett recalled that at the end of the visit he joined Donigan's conversation with Combs and had a 30-minute conversation with Donigan. His first meeting with Donigan was familiar and impressed by Donigan's profound knowledge and enthusiasm for his career. 'Donigan loves his company as much as he does, and that's very important, 'Mr. Buffett said.
Within a day, Combs expressed his intention to buy Donigan on behalf of Buffett. After the directors of the precision parts company agreed to the deal in principle, the two sides finalised the details of the deal and quickly signed the agreement.
That year, Berkshire, worth $37.2 billion. The most expensive acquisition in Hathaway's history shook Wall Street.
Donigan, who has joined the company for 20 years, stayed on as CEO after the acquisition was completed. Buffett said he might not have made the acquisition unless he was 100% sure that Donigan would be at the helm of the company for a long time in the future.
Donigan, then 59, was the kind of manager Buffett preferred: low-key, cost-saving and deeply involved in the business. He is also an expert with rich experience in mergers and acquisitions. Over the past three years, he has spent more than $7 billion pushing precision parts companies into the manufacture of high-end aircraft and engine parts. Donigan says Buffett's management and investment philosophy is strikingly consistent with his long-standing management style.
honeymoon
In 2016, Buffett wrote the acquisition of precision parts companies in his annual letter to shareholders. He said that after Burlington Railway ($26.6 billion in 2009) and Berkshire. After Hathaway Energy ($1.24 billion in 1999), International Metals ($4 billion in 2006), Lubrizol ($9 billion in 2011) and Wachovia ($4.5 billion in 2008) Precision parts will become Berkshire. Hathaway's "sixth engine".
Buffett said in the letter that the perfect integration of precision parts and the Berkshire model will greatly improve the company's standardized earnings per share.
He also spoke highly of Donigan, CEO of the precision parts company. It is under his leadership that precision parts have become the world's top supplier of aviation parts. After years of contract delivery, precision parts are mostly key components of large aircraft, with 30466 employees in various industries serving the company in 162factories in 13 countries. Donigan made a lot of acquisitions when building his business empire, and there will be more in the future, and he is looking forward to joining Berkshire.
At the same time, he also thanked Combs, the investment manager. The acquisition could not have been successful without the input and help of Combs, who brought the company to his sights a few years ago and kept telling him the tricks of the industry and Donigan's charisma. Buffett even said that hiring Combs was one of the best decisions he had ever made.
Buffett also proudly announced that Berkshire will own 10.25 of the world's Fortune 500 through the acquisition of precision parts companies.
In 2018, Buffett once again mentioned precision parts companies in his letter to shareholders that year. He described the company as a company established through acquisitions, as well as the acquisition of Wilhelm Schulz GmbH, a German manufacturer of corrosion-resistant accessories, channel equipment and components. Buffett says his knowledge of manufacturing operations is as limited as real estate agents, residential buildings and travel centers. But Buffett remains confident about the company's future. Because Donigan, the CEO of precision parts, is an extraordinary manufacturing manager, he can handle all the business in his field in good order. Sometimes it is more reliable to trust the right person than to believe in real assets.
Disappointment:
Since then, Buffett rarely mentioned precision parts in public until this year.
In his latest letter to shareholders, Buffett said that in Berkshire. Hathaway's annual report has an "ugly $11 billion writedown" because of a mistake he made in 2016. Buffett admitted that Berkshire paid too much for precision parts.
"No one misled me in any way-I was just too optimistic about its normal profit potential. Last year, as the most important source of customers for precision parts, the adverse development of the entire aerospace industry exposed my miscalculation. "
Although Buffett insisted, Berkshire acquired a good company, the best in the industry. CEO Donigan is a passionate CEO who continues to devote the same energy to the company's business. The company is lucky to have him in charge. With the passage of time, the acquisition of precision parts will get a good return.
But Buffett admitted that he was wrong about the company's future earnings, so he mistakenly calculated the reasonable price paid to buy the company.
"investing in precision parts is not my first mistake, but it must be a big mistake!"
Ending:
In a 2007 letter to shareholders, Buffett said investors in the airline industry "put their money into a bottomless pit."
But he bought the big four American airlines in 2016. The airline industry was in the middle of a golden decade, and strong travel demand and lower fuel costs led to double-digit growth for many North American airlines.
Even in March 2020, when the COVID-19 epidemic began to wreak havoc around the world, Buffett declared that he "will not sell aviation stocks." But in May, he cleared all his four major airline shares. But even in the best days of the aviation industry, the market value of his airline shares was less than the amount he spent on precision parts companies.
Precision parts companies are Buffett's biggest thoughts about the aviation industry. When the aviation industry really recovers, this "wrong" investment will take a turn for the better.